2 thoughts

  1. Sir:
    Your remarks are right on. I would like to ask just what was the underlying cause of the 2007-2008 recession. Was it housing? If it was housing, then why did people who had lived in their homes since the mid 1990s and early 2000s, ended up losing their homes? Was it health care that has gone up 30-40% of the last decade? Or was it energy that soared 400% in the mid 2000s. I really believe that people under estimated the effects of oil prices. Any time since the 1920s, when oil has doubled in price, a recession has followed within variable time limits mostly likely due to the amount of time that oil stayed high. Oil topped $40 a barrel in 2004 shortly after we went into Iraq. It continued up and by 2008 the price reached 147 a barrel. Gas was over $4 a gallon. In retrospect, the price of gasoline after 9/11 was $1.00 to $1.10 a gallon. ???????

    1. Hi Ken
      In reality a major cause of the recession is that our country and the financial industry was too leveraged up on debt and had no equity or capital to back it up. I will try to answer your questions. In regard to people who have lived in their homes from the mid 1990’s to 2000. What I have seen in my business that many people used their homes as piggy banks. This would be a good example. Someone who had only 100,000 mortgage throughout the 90’s and early part of 2000 saw there home go up in value a lot. That made them feel wealthy. However, you can’t use your equity as cash unless you do a cash out refinance or have a home equity line. I saw one family refinance their home 4 times in the last decade. Their 100,000 mortgage went to $562,000 because they could cash out on their homes because their home price rose in value. Now, they are still living in the home and always will. However, that is reverse economics. The older you get, the less debt you should have because your work life span is diminishing. You need to use your most economic productive years to reduce long term debt and save for retirement. This country and many people took the opposite avenue. I saw a lot home owners do the same from 2000-2007. They would have major equity in their homes if they didn’t pull money out of their house. Instead some not all took money out and in a sense bought item that just went down in value. They bought a car, TV, trips and did some work on the home. However, when home prices went down, so did their equity. So, to answer that question. If people lost their homes that had been living in their before 2000, a reason could be they refinanced their home and sometimes refinanced their home into a awful loan product as well. Now in regard to oil prices. As you have seen oil prices have be very up and down in the last 8 years. You had range of 140-40 in prices. You can use speculation as one reason for prices being so active. However, another main reason is the growth of the world. If you compare the world consumption of oil in the 1990’s to last decade you can see that the world is just consuming more oil. The rise of China, India and a host of other countries is a factor in the price of oil. I do agree and have written that price of oil is factor not in housing but in the overall economy and maybe the main reason we go into a another recession. Thank you for you question Ken.

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